Job growth slows sharply in September; unemployment rate rises to 4.2%

WASHINGTON — Job growth slowed more than expected in September, but that likely does not signal ​a material shift in the labor market, with the weakness likely related to a calendar quirk.

Nonfarm payrolls increased by 29,000 jobs last month after a downwardly revised 133,000 rise in August, ‌the Labor Department's closely watched employment report showed on Friday. Economists polled by Reuters had forecast payrolls advancing 90,000 after a ⁠previously reported 162,000 surge in August.

Estimates ranged from ​as low as 35,000 to as high as ⁠180,000. Volatility linked to seasonal adjustment factors, the model the government uses to strip out seasonal fluctuations ‌from the data, probably ‌accounted for both the meager payroll gains last month and the downward revision to ⁠August's count.

Payrolls have a tendency to underperform when the Labor ⁠Day holiday falls late in the month, as was the case this year, economists noted. There have been no signs of a broad increase in layoffs. First-time applications for unemployment benefits have been hovering at 57-year lows amid robust corporate profit growth and resilient domestic demand.

Economists, however, expected that growing headwinds from the U.S.-Israel war with Iran, including high energy prices and ‌strained supply chains, would start disrupting the labor market by the end ​of this year and into 2027.

Diesel prices are at record highs and could start to exert pressure beyond the transportation and agricultural sectors. Ongoing tariffs also are a source of concern, with an Institute for Supply Management survey on Thursday showing rising anxiety among manufacturers over the trade war with Canada.

The unemployment rate increased to a still-low 4.2% last month from 4.1% in August. The unemployment rate is being kept low as retirements and the Trump administration's immigration crackdown ​reduce labor supply. The economy needs to create between 50,000 and 80,000 jobs per month to keep up with growth ‌in the working-age ‌population, economists estimated.

The ⁠Federal Reserve last month raised its benchmark overnight interest rate by 25 basis points to the 3.75%-4.00% range, the first hike in three years, and flagged further increases in borrowing costs ahead.

The odds of another rate hike this month were diminished by cooler-than-expected inflation readings for August and July. Ahead of the ‌employment report, financial markets are ​pricing in a roughly 22% chance of further monetary ‌policy tightening at the Fed's ⁠Oct. 27-28 meeting, down ​from about 69% a week ago, CME Group's FedWatch tool showed.

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